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Property Investment Loans

An investment loan could be the first step in getting you into the property market, allowing you to realise your long-term financial goals. If you’re already in the market, it is a great way to build your net worth.

Property investment is the key way Australians have chosen to build their net worth. Australia's a land-rich country, and property is an investment you can 'set and forget'.

Once you've purchased a home that can be rented out, found a good property manager or reliable tenant, you will generally be able to realise long-term growth without micro-management of your investment.

Is a Property the right choice of Investment for You?

Investing in property is a long-term commitment. With an investment property, you’ll earn rental income, as well as realise capital gains into the future. However, before you start hunting for an investment property, it's important you consider whether you'll be making the best long-term decision.

You need to think carefully about your current financial position, and whether you'll be able to afford to keep paying the mortgage on the property even in periods of vacancy where you don't have any rental income.

The next thing to consider is what kind of property you can afford to buy as an investment. Will you attract decent tenants, and be able to afford to buy in an area with long-term growth?

The third consideration is about where you are going in the future. Can you afford to hold the property for a long period of time, in order to realise capital growth? If you will need access to the money you want to invest in the near future, investing in property might not be the right choice.

Benefits of Investing in Property

You can potentially earn rental income that may cover your loan repayments.

Especially in the capital cities, there's increasing demand for housing options. This means that if you make a smart investment, your property will increase in value over the longer term, and you'll have minimal vacancy periods.

You can benefit through taxation and gearing.

Building equity in an investment property is a good way to diversify and expand your portfolio and reduce your overall risk if you have an investment in cash, shares or managed funds.

What is an Investment Property Loan?

An investment Property loan is just like a regular home loan. The main difference is that you’ll need a different insurance than if you occupied the property. There are two types of loans that are particularly attractive to investors:

Interest Only

This loan is particularly handy if you wish to renovate the property you purchase, or if the investment property is not your first property purchase. Paying interest only on the loan for a set term frees up the cash you’ll need to do the renovations. Or if you own your primary residence, it allows you to increase the equity you have on this property.

Line of Credit

If you own property then you might be able to use the equity you’ve built up as a deposit for your investment property. You can draw from a set amount for additional expenses. This type of loan is for the conservative people, though - having access to cash can go against you in the long term if you aren’t very careful.

Tax Benefits

Property Investment comes with tax benefits that can help you to meet your financial goals, so if you’re renting your property out, you can claim deductions for a range of expenses related to the rental property, including:

Interest on the loan, ongoing loan fees.

Council rates, land tax and strata fees.

Building depreciation.

Repairs, maintenance, pest control, gardening.

Building and landlord insurance.

Accounting and bookkeeping fees.

Worst Case Scenario

If the rent you receive doesn’t cover your mortgage, you’ll enter a period of ‘negative gearing’. The difference between the costs of the property ownership and the rent coming in can be offset by the tax deduction.

This allows you to go into a negative cash flow for a period of time. The cyclical nature of the property market generally means that if you wait it out, property prices will rise and leave you with a long term profit in capital gains.

What features should I look for my Investment Property?

A good investment property is one with good potential for capital growth.

If you have an idea of where you’d like to invest, you can get free important information and statistics from Residex to help you make the important decision and ensure your property purchase will enhance your investment portfolio.

If you're ready for more comprehensive advice, check out our property investment guide which can help you to understand the different types of investment strategies that you can choose from, and how to buy an investment property that will fit neatly into your financial goals.

Investment Property Process

Investing in a property should be an exciting and straightforward process. We’ve put together some of the steps you’ll need to take so you have a clear idea of how to move forward.

Make an investment plan

Purchasing property is a pretty big commitment, so you want to make sure that you set yourself achievable financial goals. Speaking to a mortgage broker will help you understand what you can afford to invest, and give you an idea of what to expect.

Owning an investment property is a long-term decision, and during the time you own it, you’ll experience some ups and downs such as slowing of capital growth, problems with tenants or vacancy periods.

Get a loan pre-approval

With a loan pre-approval, you have a set budget for the property before you begin to search. When you find the right place and make an offer, you’ll be showing the vendor you mean business and you’re ready to move on the purchase right away, giving you an edge over other offers.

Do your research

You may decide to engage a Buyer’s Agent to help you find the right place, or you might collect some data yourself. Your broker should be able to assist you with finding a suburb that has predicted capital gain and with property reports on the places you are considering.

Something you’ll want to find out is the vacancy rates for rentals in the area. A few must-have features for an investment are:

Security

Storage space

Parking

Low maintenance

A pleasant outlook

Remember to use your head on this one. You’re not looking for a home to live in yourself, you’re looking for a property that’ll suit a broad spectrum of desirable tenants.

Find a conveyancer or solicitor

Getting the right legal assistance will make a huge difference to the ease of the transaction once you find your investment. Our business partners offer a range of services essential at this point in the buying process.

Choose your property and make an offer

Once you’ve found a place you want to buy, get a building inspection done before you make an offer.

If you’re buying at auction, you’ll need to have a 10% deposit to pay on the day if you’re successful.

If you’re making an offer in writing, get your conveyancer to check over the documents. It’s best to make a conditional offer so if one of your conditions is not met, you have a legal remedy.

Make sure you have insurance for the property arranged, as once the contract is signed it becomes legally yours.

Once you've successfully purchased your first investment, you can celebrate without the hassle of having to move house.